HOA Rental Policies – Procedural Flaws That Matter

Condo and townhome owners who are serious about challenging an HOA’s rental restrictions should seek legal advice. An attorney will analyze the interplay between the association’s Governing Documents, HOA records, federal laws, state statutes and court decisions. That analysis will reveal if the process used to adopt the rental policy contained significant flaws.

The three scenarios below illustrate errors that can render amendments to Governing Documents invalid. Since each HOA has a unique set of facts, these examples may not apply to your association. And bear in mind that some procedural mistakes are easily corrected and therefore will not prevent enforcement of a leasing restriction long-term.

Failing to correctly count the votes – When amending Governing Documents, it’s the percentage of eligible votes that is important, not the percentage of votes cast. So if amending the Declaration of Covenants, Conditions and Restrictions (CC&R’s) requires a 67% approval rate, then 67% of eligible owners must vote “yes” to adopt it. The number of affirmative votes out of the total votes cast is irrelevant.

Also, pay attention to your HOA’s rules for discarding ineligible votes, such as provisions saying owners with delinquent HOA dues automatically forfeit the right to vote. And generally, the HOA Board never has the power by itself to amend the Declaration or By Laws.

Amending the wrong Governing Document – This mistake tends to happen when HOA’s don’t consult an attorney on the amendment process. The Governing Documents have a distinct order of precedence that resolves conflicts between those documents. For example, the association’s Declaration might state that “owners shall be allowed to lease their units to tenants, subject to reasonable regulations set by the homeowner association.” The By Laws may say that leases must last at least 6 months while the Rules and Regulations might add the requirement that copies of leases be given to the HOA Board.

In this example, an HOA that tries to ban leasing by changing the By Laws or Rules will fail. Provisions in an HOA’s Declaration trump any conflicting terms contained in the By Laws and Rules. Changing a right granted in a Declaration requires amending the Declaration itself. (Laws and court rulings can also impact these rights.)

Failing to request mortgagees’ consent - State laws, as well as the Governing Documents, may require homeowner associations to request the consent of mortgage companies when proposed amendments will change certain rights of owners. Rental policy changes often fall into this category because the ability to lease can affect owners’ financial stability and consequently, the default rate of mortgages. There is usually a specific process required to prove that the HOA did request the mortgagees’ consent, although the lenders’ affirmative response is usually not mandatory.

In summary, if you are very frustrated with your HOA’s rental restrictions, consult a real estate attorney on potential strategies. For more info, see the articles listed below.

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